RISING oil prices pose a grave threat to global economic recovery, according to some experts. The fear has been expressed by the US military and by the automobile industry. This week in Perth, Volvo's head of product planning, Lex Kerssemakers, said "we all know that oil is running out''.

"We need to find alternative solutions and though we are aware of the alternatives - LPG, CNG, ethanol, electric and so on - we have to introduce these to the market,'' he said.

"If we don't do it now, we won't be ready in five years when oil may be prohibitively expensive.''

Mr Kerssemakers said Volvo would have an eelctric car on the world market in 2012 that would use less than 1.5 litres/100km of fuel - about one-tenth of that used by a current V8-engined sedan.

Volvo is not alone in the race to produce more fuel-efficient vehicles - all car companies are either developing alternative engined or fuelled vehicles by themselves or in partnership with other car companies that, in many cases, were once their fierce rivals.

The US military this week warned the world faces a "severe energy crunch" and looming oil shortages.

According to a Joint Operating Environment report from the US Joint Forces Command, "a severe energy crunch is inevitable without a massive expansion of production and refining capacity".

The report says the central problem for the coming decade "will not be a lack of petroleum reserves, but rather a shortage of drilling platforms, engineers and refining capacity".

And it warns: "Even were a concerted effort begun today to repair that shortage, it would be 10 years before production could catch up with expected demand."

More ominously, the military predicts a "Peak Oil" scenario - where demand outstrips the world's supply capacity - as soon as 2012.

"By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels a day."

Current oil demand is about 86 million barrels a day.

The repercussions of Peak Oil have potentially grave consequences both economically and militarily.

On the military front the USFC notes that already Chinese "civilians" are in the Sudan guarding oil pipelines to protect supply, and that this "could portend a future in which other states intervene in Africa to protect scarce resources".

"The implications for future conflict are ominous, if energy supplies cannot keep up with demand and should states see the need to militarily secure dwindling energy resources," the report says.

"While it is difficult to predict precisely what economic, political and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in the developing and developed worlds.

"Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India. At best, it would lead to periods of harsh economic adjustment."

Energy will be king in the coming decades, and we must exploit our (bountiful) resources wisely, while preparing ourselves for much higher prices and potentially lower domestic economic activity (aside from coal and LNG exports).

Peak Oil is not some myth. It is a very simple equation based on supply and demand related to a very finite resource.

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